A commonly-heard adage states that all the gold ever mined in the world would fit inside an Olympic-sized swimming pool. On the other hand, all the platinum ever mined would fit inside an average living. This profound supply discretionary alone should bolster platinum prices.
But within this saying, many investors overlook another critical distinguishing factor. Due to its use as a monetary device, industrial demand doesn’t incorporate gold as much as other precious metals. Therefore, whatever gold was mined throughout history more or less exists today.
That’s a completely different scenario with platinum. Already significantly rarer than gold, industrial demand for platinum has historically risen due to the metal’s unique properties. As a result, a substantial amount of platinum was either destroyed or trashed. Because platinum prices are currently too low, it’s not always economical to recycle it.
Due to this strange, perhaps irrational setup, several market analysts called for a strong year in platinum prices. According to a statement from Aberdeen Standard Investments:
Our base-case scenario for platinum remains constructive, with a fair value of $1,000 [per troy ounce] driven by higher industrial demand, market volatility, and the South African rand…Under a bullish scenario, platinum may rise to $1,150 [per troy ounce],” or 44% above recent prices.
Based on the supply-demand picture for the precious metal, it’s easy to see why analysts were so bullish. Yet so far this year, platinum prices are only up less than 3%.
Just what is going on here?
Shifting Demand Likely to Drive Platinum Prices
Curiously, platinum was on course to hit the $900 level, getting ever-closer to Aberdeen Standard’s forecast. But in recent sessions, platinum prices have collapsed. Now, we’re lucky if the metal retains its $800 zone.
Again, due to the hard asset’s unfathomable rarity, it appears that nothing besides manipulation is responsible for the fall. While I’m not entirely discounting financial “overseers” modulating the markets, a less-conspiratorial explanation exists.
In short, the global economy faces steep challenges. Last year, the U.S.-China trade war did a number on both countries. However, the standoff also strained relations with other countries. When the top-two economic powers square off, their conflict necessarily cannot occur in a vacuum.
Also, as growth in several emerging markets matured, the necessity for metals production dipped. With fewer dollars chasing after industrial goods, platinum prices had nowhere to go but down. But that doesn’t mean we should consign ourselves to defeat.
While platinum prices have provided no joy to commodity buyers, palladium has sparked a mini-revolution. On a year-to-date basis, palladium has jumped 26.5%. Moreover, it has enjoyed a near-uninterrupted bullish trend channel since mid-August of last year.
Why? For palladium, it comes down to supply and demand: not enough inventory exists to adequately feed industry orders at previous prices.
But that also suggests that platinum — which has very similar properties to palladium — will enjoy increased demand as an alternative. It will also be rather ironic: industry leaders previously treated palladium as an alternate metal because platinum prices were too high.
Like I said before, this is an irrational setup. However, it’s also one you can advantage.